Extended Warranty Sales Soar

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Despite the recent slowdown in CE sales and foot traffic — or, more accurately, because of it — sales of extended service and replacement contracts have taken off.

According to leading extended service contract providers, or ESPs, this inverse correlation between slackening retail sales and increased demand for extended warranties, though counterintuitive, is real.

"Surprisingly, a slow economy tends to favor the service industry as it tends to shift the consumer buy vs. repair decision to the repair side of the equation," observed Jim King, general manager/sales for GE Warranty Management. "Since extended warranties offer consumers peace of mind and convenience, our business is somewhat insulated from economic downturns."

Danny Hourigan, president of the service plan division of N.E.W. Customer Service Companies, agreed. "When times are tough consumers expect to hold on to their new purchases longer, so the security that comes with buying an extended service plan is appealing."

"While no industry is insulated from changes in the economy," he added, "we've found that our business holds up extremely well, regardless of economic conditions."

Also flying in the face of economic uncertainty is VAC Service Corp., for which business remains "very good," reported principal Jim Tucker.

"When the economy is soft, consumers are more concerned about big-ticket purchases, so they're more inclined to protect their investment," he said. "When the economy is good, they have the disposable income and figure why not buy an extended service contract. So in a way we're recession-proof."

Indeed, Matt Frankel, VP of American International Group's AIG Warranty division, said that the correlation between slowing retail sales and rising attachment rates is directly proportional. "Attachment rates went up at the same rate as retail sales went down," he noted, which is also attributable, ironically, to the drop-off in traffic.

"Light floor traffic gives sales personnel more time to focus on customers and to do a better job selling accessories and services," he said. "That's when our work in the past training the sales staffs really starts to reap benefits."

To be sure, ESPs aren't counting on economic swings alone to drive sales of service and replacement plans. AON Warranty Group, for one, leaves nothing to chance. Its Innovative Solutions unit, explains senior VP John Hofmann, provides "a vertically integrated approach" to building business by offering a full plate of direct marketing services and Web-based solutions in addition to call centers and retailer-specific sales training.

Consumer contact points includes direct mail and outbound follow-up calls, which give AON additional opportunities to boost attachment rates above the four-out-of-10 industry standard. "Maybe it was busy in the store, or the customer had her children with her and didn't have time to purchase a plan," Hofmann said. "Direct marketing allows us to pursue the customer after the purchase in conjunction with the retailer."

AON has also enjoyed an "enthusiastic response" to its online offering, dubbed ServicePort.com, which allows consumers to buy plans and manage their claims quickly and efficiently over the Internet, he said.

The company is also about to launch a new initiative that represents "an expansion of our training capabilities," Hofmann said, as "AON prides itself on the breadth of our training."

All ESPs agree that proper training of retail sales associates is one of the most critical services they can provide merchants. Frank Ferrara, VP/extended service contract product development for Assurant Group Consumer Services, underscored the point by noting that fear of customer dissatisfaction is the No. 1 factor that derails service plan sales.

"The sales person may have the product, but they're afraid to execute it out of concern that the customer will come back to them if they're dissatisfied with the service," he said. To help allay their fears, and assure them that Assurant will handle every aspect of customer service for the end-user, sales associates are invited to company call centers during their field training.

"We ask them to time our response time on their watches," Ferrara said. "When they see that calls are answered in no more than 20 seconds, it builds their confidence in us and they'll be more inclined to sell our products on the floor."

VAC, which pioneered direct, after-sale marketing of extended service contracts, has raised the bar on customer service still higher with its longstanding Total Care program, which allows a retail client's customers to call VAC's 24/7 help lines whether they purchased a contract or not.

Meanwhile, ESPs continue to expand and refine their businesses while riding the current demand wave. In the latest industry news comes word that Warrantech has been designated as the only "endorsed" provider of extended service contracts for the MARTA Cooperative of America's more than 100 independent dealer members.

According to Warrantech chairman/ CEO Joel San Antonio, MARTA members stand to benefit from his company's recently introduced Internet-based software program, WCPS Online, which will reduce paperwork and cut the time and costs associated with administering service contracts for customers.

Also helping retailers streamline back-office functions is Service Net. Besides providing larger customers with an online forum for warranty sales, the company has been rolling out a test program to allow small to mid-size dealers eliminate paperwork by submitting service contract sales through an automated Web site, which can improve cycle time and decrease costs, said e-Business adoption manager Stefanie Stommel.

The big news at GE is the integration of its warranty, lighting and appliance businesses into the new Consumer Products unit. While the change will be "invisible to our customers," said general manager King, it "makes us a much larger business entity with more resources."

For VAC, the company is enjoying the fruits of its last year's investment in Technical Satellite Repair (TSR), a wholly-owned satellite repair and refurbishing center in Harrisburg, Pa., that provides satellite system manufacturers and service centers throughout the U.S. with 48-hour turnaround service.

Elsewhere, new developments at N.E.W. include the recent launch of a program for The Sharper Image, along with an enhanced feature set for several of its product offerings and the development of several new product offers. "We're also developing some additional areas of business that will leverage our infrastructure and core capabilities," said president Hourigan.

But perhaps the biggest ESP coup was scored by AIG, which was tapped by Wal-Mart to handle its entry into the extended service plan business beginning early next year in Canada, covering virtually all categories.

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